RIPR is a (paper) newsletter and a weekly column appearing in ten
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Aug 09 (38) - How your government's
economic policies have worked against you. What a fake nineteenth
century nun can teach us about the tea party protests.

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The Rhode Island Policy Reporter is an independent news source that
specializes in the technical issues of public policy that matter so
much to all our lives, but that also tend not to be reported very
well or even at all. The publication is owned and operated by Tom
Sgouros, who has written all the text you'll find on this site,
except for the articles with actual bylines.

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Tom Sgouros

Sun, 28 Jun 2009

I asked the likely gubernatorial candidates what they think about
Rep. Scott Guthrie's proposed amendment to the budget last Wednesday.
This amendment would have frozen the "flat tax" rate at the current 7%
limit and appropriated the savings to revenue sharing for cities and
towns. The amendment failed 23-52. Do they concur with the House
leadership that this was not a good idea?

Frank Caprio:

"We need comprehensive tax reform, and we need to
start by thinking about having a singular, consistent approach, not a
dozen continuously changing tax policies. Our tax strategy needs to
focus on helping businesses, particularly small businesses, create
jobs."

Elizabeth Roberts:

"No one element of tax policy can be considered in
isolation. What RI needs is a coherent, integrated tax policy that
meets the goals of: fairness to all Rhode Islanders, regional
competitiveness, lowering the tax burden on the middle class and
working Rhode Islanders, and supports a comprehensive economic
development plan."

These, of course, are not what you'd call answers to my question.
Patrick Lynch and Lincoln Chafee both declined to comment, both
saying it was because they're not official candidates yet.

In other words, none of them were willing to express an opinion
about how our government ought to be funded.

Sat, 20 Jun 2009

I just finished reading an interesting report, out last week from the
Rhode Island Coalition for the Homeless and RI Legal Services, about the
plague of foreclosures and evictions upon us. It's an interesting read,
and filled with useful maps about where evictions have happened, and
which banks are doing them. (See rihomeless.org.)

Sadly, many foreclosures happen on rental property, and many banks
routinely evict all the tenants when that happens. Since sales rates
are way down, lots of these properties end up boarded up and vandalized,
while the evicted families end up, well, evicted. It is just as dumb as
it sounds, but these banks have chosen not to be in the
property-management business, an understandable business decision -- if
you ignore the damage they're doing to our state.

The first thing I learned is that the places with the most evictions and
foreclosures are exactly where the most real estate speculation
happened. In Providence, for example, the hardest hit places were not
the poorest, but the places where the poor neighborhoods abut better-off
neighborhoods. So in Providence, the West End and Elmwood were hit
harder than South Providence, and the Woodlawn part of Pawtucket, next
to Oak Hill and Providence's East Side, suffered, too. These were
places where, during the crazy years of 2000-2006, the demand from
nearby neighborhoods spilled over, raising prices a lot. They were
therefore places where investors could get a bargain, and so properties
moved a lot in these areas.

According to a 2007 analysis I did of land records in Providence,
flipping in these areas was epidemic. For example, in plat 43 in
Providence, which covers part of the West End around Cranston Street and
Potters Avenue, over 40% of the sales that happened between 2003 and
2006 were for rapid-fire investment. People were making a lot of money
here, but they weren't making it by managing the properties for the
benefit of the people who lived there, so it's no surprise to see this
neighborhood well represented in the evictions report. When sales rates
declined, the possibility of the quick hit evaporated, and many
investors walked away.

All those investors -- who now leave such a sorry mess for us to clean
up -- benefited from the reduced capital gains tax rate. The money they
earned by flipping those properties was taxed at a lower rate than the
money you earned at your job. Happy about that? Did we really need to
use the tax code to encourage this mess?

The other thing I couldn't help notice was that of the eight banks who
have engineered the most evictions, most have no branches in Rhode
Island. Bank of America, offender number four on the list, was the only
one with a real presence here. The others were banks able to supply the
money to "invest" in our state, but completely without the ability or
interest to manage the properties they suddenly owned.

A few years back, after the tech bubble burst, I was talking to an
executive at a software company I consulted for. He surprised me by
saying how pleased he was to have been able to reject what I thought
sounded like a generous financing offer from a venture capital firm.
Since the company was teetering, I thought this was a curious strategy,
but he explained to me the world of difference between venture
capitalists.

Some venture capitalists make the construction of a business their
priority. These investors populate the boards of companies with people
who have the expertise to grow that company, looking to make management
stronger and smarter. The other breed of investor is more interested in
the quick hit, and gives precedence to cashing out. With these guys,
you'll eventually find your board stocked with members whose loyalty may
be to the VC boss rather than to your business. They'll vote to sell
when he says sell.

In other words, it not only matters where an investment goes, it matters
where it comes from. Local investment from local sources provides the
owner of the investment with a much different set of priorities than the
owner of an investment in some distant place.

The tax cuts that are the center of my griping about the state budget
are indiscriminate kinds of things. They are cuts given to people who
will invest badly, people who will invest well, and much goes to people
who won't invest at all. (And about two-thirds of the benefit of the
"flat tax" currently goes to people who live in another state.) To
their credit, House Finance took a little bit of this back by
eliminating the tax advantage to capital gains income, but there is
more, and the indiscriminate nature of it all is irksome and above all,
wasteful. Want to know where there's waste in government worth cutting?
Start right there with the tax code.

Thu, 18 Jun 2009

Sat, 13 Jun 2009

The bills that would reverse Rhode Island's incineration ban
and qualify waste-to-energy as a renewable energy source are
H6053 and S933. Please tell your representative or senator to oppose
them. Read below
for more.

I was passing through Portsmouth a couple of weeks ago, and couldn't
help noticing that the town is now home to a second giant wind
turbine, which seemed pretty cool to me. The new turbine is owned by
the town, and generating electricity that the town sells to National
Grid. Electricity isn't the only thing Portsmouth sells, though.
They also sell something called Renewable Energy Certificates (REC).

An REC is sort of like a green blessing for a megawatt of electricity.
Better yet, think of it as the bragging rights for using that green
electricity. If you have the certificate, you have a legal right to
claim you've used a megawatt-hour of renewable electricity.
Portsmouth is allowed to issue one REC for every megawatt-hour they
produce.

RECs are important because electrons are electrons, and they don't
come with little labels saying how they were generated. An electron
that comes out of the socket in your wall is the same whether it was
generated by Portsmouth's wind turbines or by an ancient and filthy
coal-fired generator in Ohio.

By selling the REC separately from the electricity, we give the
producers of renewable power a subsidy whose price depends on the
demand for green power. The higher the demand, the higher the price
for RECs. In order to boost the demand, and provide a better price
for renewables, Rhode Island, along with 24 other states, has a
requirement that a certain percentage of electricity sold here be from
renewable sources. The way this is enforced is that National Grid (or
Pascoag) has to buy enough RECs to cover that percentage of the
electricity they deliver to our homes.

It's an interesting idea, and it seems to be working fairly well. The
price of RECs isn't outrageous, but it's high enough to provide a
modest subsidy to renewable energy. People can (and do) bid up the
price by buying RECs as "carbon offsets" at sites like carbonfund.org
or green-e.org. And the market is responding to this gentle pressure,
and new sources are coming online every month.

Sounds good? There is a problem, and that's defending the subsidy for
the kinds of producers it was meant for. When you think of renewable
energy, you think of wind power, solar cells, hydropower, and things
like that. Do you think of trash incinerators?

A bill pending in the General Assembly says yes. It would introduce
Covanta Energy, a New Jersey operator of incinerators, no, sorry, of
"modern Energy-from-Waste facilities" (quoting their web site) to our
state. Covanta would build a plant to burn trash intended for the
Central Landfill in Johnston. The pending bill would not only end
Rhode Island's ban on trash incineration, but would allow Covanta to
sell RECs to subsidize its operation.

This is what we students of government call a really bad idea.
Connecticut did something similar in 2005, loosening their definition
of renewable energy, and the price of RECs there plunged from $35 to
aout $5. Beyond just Portsmouth, Rhode Island has a bunch of
organizations making plans to bring renewable energy projects online.
This change would cut the legs out from under those projects. If you
want to see green projects built around here, if you want to see jobs
in those industries develop, or if you just want to do our part in
making progress on global warming pollution, this is the wrong way to
go.

And that's before we've said anything about trash. An incinerator
could keep the landfill from overflowing, which isn't a bad thing, but
that's not all it would do. I have no doubt that the new incineration
technologies are much better and cleaner than old ones, but "cleaner"
doesn't mean "clean." The best incinerators are still sources of
heavy metals and dioxins, even if they're not as bad as they used to
be. What's worse, though, is that an incinerator demands to be fed.

We save more energy, more pollution, and more natural resources by
reducing our use and by recycling, but the owners of a big incinerator
in Johnston are going to be at every town and state hearing from now
on, demanding that we *not* increase our recycling rates and that we
*not* forbid wasteful packaging or that we *not* look for other ways
to reduce the amount of trash we generate. If we do manage to reduce
the waste stream, they will demand to be allowed to import trash from
other states.

A study from the Massachusetts Department of Environmental Protection
points out how real the issue is. The study, done by the Tellus
Institute, is a review of several different waste management
techniques, with an eye to recommending strategies to deal with
Massachusetts own solid waste problems. They point out that recycling
saves more than three times the energy of the most efficient form of
waste-to-energy technology, and that it's far cheaper and quicker to
get underway than any incinerator.

The potential to reduce Rhode Island's waste is huge. The island of
Nantucket is now seeing recycling and composting rates approaching 90%
of their municipal waste. Only a handful of communities in Rhode
Island see rates any higher than 30%, and most are still below 20%.
We could make a tremendous improvement in these rates at a much lower
cost to our health, safety, environment, and wallets than with an
incinerator.

Rhode Island has a serious trash problem. But as is often the case,
the technological solution is more expensive, less effective, and more
disruptive than the simple solution. Let's make the right choice, at
least this once. Call your Representative or Senator and tell them.
The bill details are at whatcheer.net.

Tue, 09 Jun 2009

On the news that George Tiller's family is not interested in being
picketed, protested or shot. From the Times

Even some abortion opponents, who had long devoted their
efforts to closing down Dr. Tiller's clinic, said they did not wish to
see it happen under these
circumstances. Last week, Troy Newman, the leader of Operation
Rescue, had said that closing the clinic now would send a
worrisome message. "Good God, do not close this abortion clinic
for this reason," he said in an interview with The New York
Times. "Every kook in the world will get some notion."

Sat, 06 Jun 2009

A couple of weeks ago, during a hearing at the Senate Finance
committee, chairman Daniel DaPonte (D -- East Providence and
Pawtucket) made some disparaging remarks about our cities and towns.
In response to a witness who made a comment about how cuts in
municipal aid were forcing cities and towns to raise property taxes,
Senator DaPonte said, "There's no evidence that giving cities and
towns more money will result in property tax cuts. We've raised
municipal aid and property taxes haven't come down."

In fact, the chairman is right that municipal aid has gone up a lot,
but he's wrong, too. Municipal aid grew from $28 million in 1990 to
$234 million in 2008. What are the towns doing with all that money?
Flushing it down the toilets in town hall?

In fact, they can't flush it because they don't get even half of it.
That number serves to nurse the standard story about what's wrong with
local government, but it doesn't have much to do with paying bills at
town hall. You see, to make the sum as large as $234 million, the
state budget writers include $135 million in reimbursement for car
taxes. This is real money, certainly, but it goes to taxpayers, not
towns. It does not help balance municipal budgets

If you ignore the car tax reimbursements, state aid to cities and
towns is down, pretty much any way you slice it: as a proportion of
state spending, as a proportion of municipal budgets, and as a
proportion of the state's economy.

1990 was an interesting moment in this history. For all his faults,
Ed DiPrete was once a mayor, and therefore was the last governor who
had ever balanced a local budget, and it showed. At the time, state
aid was funding 29% of municipal budgets, including about 50% of
education costs. Official state policy was that we'd eventually be
funding 60% of local education.

But the 1991-92 fiscal crisis knocked everyone for a loop, and Bruce
Sundlun was a lot of things, but mayor was never one of them. State
aid fell to 23% of municipal budgets. Lincoln Almond's administration
pushed it back up to 33%, but it's been declining ever since Governor
Carcieri took over, and we're down to 27% as of 2008 (including 36% of
education costs, counting generously). It's a little hard to say
what's the case in 2009, since the dust hasn't settled, but the only
real question is how great the decline.

For cities and towns, what's the difference between Lincoln Almond
(33%) and Don Carcieri (27%)? $160 million in local aid, that's what.
But you'd rather have a couple of replacement bridges, wouldn't you?

"Wait a minute," you say. "Even though municipal aid is down so much,
you're measuring it in relation to other numbers that have gone up.
What about the real number?"

Fair enough. As of 1990, Rhode Island cities and towns received about
$1.3 billion, between state aid, property taxes and various municipal
fees. In 2008, this was just a bit short of $3 billion (still not
counting the car tax). If you're keeping score, that's growth of
about 1.9% per year after correcting for inflation. This is
troubling, but it's not necessarily evidence of mismanagement.
Inflation measures the price of goods and a few services, while towns
spend their money on services and a few goods.

If you want a yardstick with which to measure a service-oriented
enterprise like a town, how about a private-sector service like
Federal Express? Fedex is widely considered a fierce (and nonunion)
competitor who relies on technology to keep costs down. How have they
done over the same time? Well, in 1990, it cost $11 to send an
overnight letter to California, and today it's about $25.50 for the
same service. After correcting for inflation, that's up about 2% a
year. Health care is also a service industry, and I think we'd all be
much happier if it had kept its costs down to 2% growth. On the other
hand, movie ticket prices are actually down compared to inflation, so
not all service industries see this degree of cost inflation.

What about the state? After accounting for inflation in the same way,
the state's general revenue has gone up 2.4% per year since 1990, and
overall expenses are up even more.

This is what makes it so galling to sit around in town hall these
days. Here you are, running your town more efficiently than Fedex,
and way more efficiently than the state, but look how you're
treated.

I'm not saying 1.9% a year is great. My income hasn't gone up that
fast. It's a cause for concern for me, and should be for you, too.
I'm not counseling complacency; government needs watchdogs. But we're
not going to fix anything by getting all the important answers wrong.
In this case, putting the blame on the cities and towns tends to
absolve the state, which by comparison has been downright reckless
with its finances at the same time it starves the cities and towns.

We have nearly doubled the state debt since 2002, for example, taking
on giant road projeects we can't afford. We have stolen from the
following fiscal year in service of the current year. And we've given
millions of tax dollars to the wealthiest of our citizens, tax cuts
the state's budget-writers still haven't given up on, despite the
crisis.

The big difference between the state and the municipalities here is
the state's tax revenue grows in step with the economy, while
towns have to raise tax rates in order to keep up. Towns pay for
their tax increases in the form of property tax riots, while the state
gets its increases for free, as it were. For years, all those
cost-of-living adjustments and allowances for the rising price of fuel
are built into the state's funding source, so they're easy to build
into the budgets. Except for the fastest-growing towns, this was a
pleasure denied to municipalities. Legislators and the Governor can
tsk the way they do at the locals because the state has been insulated
from their budgetary recklessness by this constantly growing stream of
income.

Until, of course, the music stops. This year, collections from the
state income and sales taxes have declined, and the state is reeling from
accumulated years of irresponsible budgeting, and naturally, the state
is blaming cities and towns again. Some things never change.

Fri, 05 Jun 2009

It's a story with a simple truth: that violence is a dead
end. It is a sign of neither courage nor power to shoot rockets at
sleeping children, or to blow up old women on a bus. That is not how
moral authority is claimed; that is how it is
surrendered."

I think the moral high ground is routinely undervalued in
discussions of international (and national) affairs. The contrast
between South African and Palestinian history of the last 50 years
could hardly be more stark.